DSW's Expansion Strategies

Zacks

Leading footwear retailer, DSW Inc. (DSW) has been aggressively using its resources to expand store base in fiscal 2012. With the intention to accomplish its plan of opening 39 new stores in fiscal 2012, the company announced three more store openings on October 4, 2012.

The new stores are destined at different locations – Maplewood, Minnesota, Providence, Rhode Island and Gurnee, Illinois.

DSW has already opened many new stores in the ongoing fiscal year, with a further move to open about 26 stores in the third quarter and one in the fourth quarter. Of the planned new store openings through the rest of the year, the company aims at opening 7 stores in new markets, while 20 stores are lined up to open in the existing markets. The company’s store plans for fiscal 2012 cover all major geographic regions in the U.S. with little focus on the northeast.

DSW’s store expansion strategy is expected to be accretive to its top-line growth, as DSW offers a wide range of designer shoes at discounted prices for men and women. Its wedding shop collection provides exclusive assortments for bridal parties and occasions.

To attract the attention of customers, DSW runs a free, award-winning loyalty program ‘DSW Rewards,’ which issues certificates to the customers for future purchases at DSW. Moreover, customers receive members-only offers through this loyalty program.

DSW, as a policy, prefers to open new stores in the higher volume periods of the first and third quarter. However, against this long-standing strategy, the company opened two larger-than-average downtown stores during the second quarter of fiscal 2012. Additionally, the company relocated two stores in the second quarter. This brings the company’s total new store activity to 12 new stores and four relocations for the first six months of fiscal 2012.

Columbus, Ohio-based DSW currently operates 352 stores in 41 states and also supplies footwear to 342 leased locations in the United States. The company also runs an e-commerce site www.dsw.com and a mobile website m.dsw.com. The company competes head-to-head with Collective Brands Inc. (PSS) and J. C. Penney Company Inc. (JCP).

DSW has exceeded the Zacks Consensus Estimate earnings over the last four quarters, and we expect the company to sustain its momentum in the coming quarters as well. Based on the better-than-expected second-quarter results and rising earnings momentum, DSW currently has a Zacks #2 Rank, implying a short-term Buy rating for the next 1-3 months.

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